U.S. Postal Service: Revenue Losses From Express Mail Accounts Have Grown
(Letter Report, 10/24/96, GAO/GGD-97-3).

Pursuant to a congressional request, GAO reviewed the U.S. Postal
Service's controls over Express Mail Corporate Accounts (EMCA), focusing
on: (1) whether there is any basis for the allegation of EMCA abuse; and
(2) if so, what steps the Service is taking to help avoid or minimize
EMCA revenue losses.

GAO found that: (1) some mailers obtained Express Mail services using
invalid EMCA in fiscal year 1995; (2) the Postal Service did not collect
the postage due or verify EMCA which were later determined to be
invalid; (3) the Service has increased efforts to collect EMCA revenues
and is installing terminals at post offices to provide employees with
improved access to postage rates; (4) the Service must also provide
improved access to lists of valid EMCA and EMCA account balances to post
offices and mail processing plants; and (5) Postal Service employees
need to follow new and existing procedures designed to help prevent EMCA
revenue losses.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-97-3
     TITLE:  U.S. Postal Service: Revenue Losses From Express Mail 
             Accounts Have Grown
      DATE:  10/24/96
   SUBJECT:  Postal service
             Postal rates
             Postal facilities
             Postal service employees
             Losses
             Budget receipts
             Internal controls
             Government collections
             Mail fraud
IDENTIFIER:  USPS Express Mail Program
             Dallas (TX)
             New York (NY)
             Van Nuys (CA)
             USPS Electronic Marketing and Reporting System
             USPS Priority Mail Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on the Postal Service, Committee
on Government Reform and Oversight House of Representatives

October 1996

U.S.  POSTAL SERVICE - REVENUE
LOSSES FROM EXPRESS MAIL ACCOUNTS
HAVE GROWN

GAO/GGD-97-3

Express Mail Controls

(240199)


Abbreviations
=============================================================== ABBREV

  EMCA - Express Mail Corporate Account
  EMRS - Electronic Marketing Reporting System

Letter
=============================================================== LETTER


B-262118

October 24, 1996

The Honorable John M.  McHugh
Chairman, Subcommittee on the Postal Service
Committee on Government Reform and Oversight
House of Representatives

Dear Mr.  Chairman: 

As you requested, we are reporting on the U.S.  Postal Service's
controls over Express Mail Corporate Accounts (EMCA).  These accounts
allow customers to deposit money with the Service for using as needed
to pay for Express Mail delivery services.  The Subcommittee
requested this review because of its general concern about the
Service's protection of postage revenue and because of an allegation
that some customers obtained Express Mail services using bogus EMCAs
that were not caught by the Service.  As agreed with the
Subcommittee, our objectives were to determine (1) whether there is
any basis for the allegation regarding EMCA abuse and (2), if so,
what steps the Service is taking and could take to help avoid or
minimize EMCA revenue losses. 

The Service first offered EMCAs in 1984 to provide a convenient way
for customers to pay for Express Mail services and thereby help stem
a decline in Express Mail business.  Any individual or business can
open an EMCA and receive an EMCA number to place on Express Mail
packages by depositing as little as $100 with the Postal Service.  To
maintain valid EMCAs, customers must keep at least $50 in their
accounts.  Express Mail packages citing EMCA numbers can be handed to
a clerk at any post office or dropped in specially marked collection
boxes located on many streets.  When a Service employee receives an
Express Mail package at a post office or mail-processing plant, the
employee is to (1) make sure the EMCA number is not on the Service's
list of invalid numbers and (2) record data from the package so that
it can be tracked by the Service and the customer can be charged for
postage.  A more detailed description of the Service's EMCA
procedures is included in appendix I. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

As a result of our review, we found a basis for the allegation that
some mailers obtained Express Mail services using invalid EMCAs and
that the Service did not collect the postage due.  In fiscal year
1995, the Service lost Express Mail revenue of about $800,000--a
91-percent increase from fiscal year 1993--largely because the
Service had not verified EMCAs, which it later determined were
invalid.  These losses occurred after Postal Service employees spent
a considerable amount of time trying to collect postage from EMCA
customers who had obtained Express Mail services using invalid EMCAs. 

The Service has few requirements for opening EMCAs and, when
accepting Express Mail packages with EMCA numbers, employees did not
always do the verifications required and also did not have access to
EMCA data necessary to ensure that the numbers were valid.  Contrary
to Service policy, EMCA customers overdrew their accounts and, in
some cases, carried negative balances ranging up to $10,000 for as
long as 5 months.  Further, the Service accepted and delivered some
Express Mail packages without recording any data when it accepted the
packages.  In these instances, it could not accurately track and
report the transactions and, in cases where EMCAs were used, did not
collect the postage. 

Postal Service officials said that they eventually plan to provide
employees accepting Express Mail at post offices with automated
access to valid EMCA numbers and fund balances, which could help
reduce EMCA revenue losses.  However, the date and cost of providing
such access is yet to be determined.  Also, the Service has no plans
to provide similar access to employees who are responsible for
verifying EMCA numbers at mail-processing plants.  Postal Service
officials said that EMCA problems occur more often at processing
plants than post offices because of greater time pressures at the
plants to move the mail.  Recognizing EMCA control problems, Postal
Service units recently began self-audits of EMCA operations, which
could help to reduce EMCA revenue losses. 

The Service's planned actions to improve controls over EMCA
operations will take a considerable amount of time and money to
complete.  Further, even when completed, they will not have addressed
several EMCA control weaknesses we identified, such as the lack of
automated EMCA data access at processing plants.  In light of the
many EMCA control weaknesses requiring corrective action and various
other factors--such as developments in the overnight delivery markets
since EMCAs were first introduced in 1984 and the fact that the
Service now offers other convenient methods (i.e., debit and credit
cards) of paying postage--EMCAs may not be the most cost-effective
way of offering Express Mail customers a way of paying postage.  The
Postal Service could evaluate the relative customer convenience,
cost-effectiveness, and other relevant factors to determine whether
EMCAs continue to be necessary or desirable.  If EMCAs are continued,
stronger requirements are needed; and Postal Service employees need
to follow both the new and existing procedures designed to help
prevent EMCA revenue losses. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Express Mail, the Service's premium service, was first offered in
1970 and is designed to provide overnight delivery for documents and
packages weighing up to 70 pounds, which are to be tracked from the
points of acceptance to points of delivery.  It is the Service's only
guaranteed delivery service, and customers may request and receive a
postage refund if an Express Mail package is not delivered on time. 
As of July 1996, the minimum postage for mailing an Express Mail
package was $10.75. 

Overall, Express Mail represents a relatively small portion of the
Service's total mail volume and revenue.  For fiscal year 1995, the
Service reported Express Mail volume of 56 million pieces, which
generated revenue of about $711 million, or about 1 percent of the
Service's total mail volume and postage revenue that year. 

The Postal Service began offering EMCAs in 1984 to make Express Mail
more attractive to customers by giving them a more convenient way to
pay postage.  Around that time, the Postal Service took other steps
as well to retain Express Mail customers.  For example, the Postal
Service's 1986 annual report to Congress shows that after Express
Mail volume dropped by 8.7 percent between fiscal years 1985 and
1986, it ".  .  .  moved aggressively to stop the decline and to make
Express Mail service more competitive." According to the 1986 report,
the Postal Service implemented an Express Mail morning-delivery
program in 30 cities, placed 10,000 Express Mail collection boxes on
the streets, and introduced a new Express Mail letter envelope in
1986. 

During fiscal year 1995, customers used EMCAs to pay about $139
million in postage on about 8 million Express Mail packages, or 13
percent and 16 percent of the Service's total Express Mail volume and
revenue, respectively.  About 90 percent of all EMCA transactions
were for domestic Express Mail, and the balance for international
Express Mail.  In addition to EMCAs, Express Mail customers can pay
postage with cash, checks, and postage meters.  Recently, the Postal
Service has begun making debit and credit cards increasingly
available for use by Express Mail customers and other postal
customers. 

The Service's Vice President for Marketing Systems, under the Senior
Vice President for Marketing, has overall responsibility for Express
Mail procedures and management oversight.  Employees at post offices
and mail-processing plants where Express Mail is accepted from
customers and prepared for delivery are responsible for implementing
the Service's EMCA policy and procedures. 


      RELATED GAO REPORTS
---------------------------------------------------------- Letter :2.1

In recent years, the House Subcommittee on the Postal Service, the
U.S.  Postal Service, and we have received allegations of fraudulent
schemes to evade payment of postage.  In addition, we have reported
serious weaknesses in some of the Service's revenue systems.  In
1993, we reported\1 weak controls over postage meters after
allegations of postage meter fraud and a statement by the Postmaster
General, which related that revenue losses could total $100 million
annually.  More recently, we reported\2 a lack of adequate procedures
for accepting bulk mail, for which the Service recorded revenue of
about $23 billion in 1994.  In response to allegations and our
reports, the Service took numerous actions to improve its systems of
controls over postage meters and bulk mail acceptance.  Since that
time, we received the allegation that mailers were abusing EMCAs. 


--------------------
\1 Postage Meters:  Risk of Significant Financial Loss But Controls
Are Being Strengthened (GAO/GGD-94-148, May 26, 1994). 

\2 Postal Service:  Stronger Mail Acceptance Controls Could Help
Prevent Revenue Losses (GAO/GGD-96-126, June 25, 1996). 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

Our objectives were to determine (1) whether there is any basis for
an allegation regarding EMCA abuse and (2), if so, what steps the
Service is taking and could take to help avoid or minimize EMCA
revenue losses. 

To review alleged EMCA abuse, we interviewed various Service
officials at headquarters offices in Washington, D.C., and reviewed
Servicewide EMCA policies, procedures, and internal controls for
opening EMCAs, verifying EMCA numbers presented by customers, closing
EMCAs with negative balances, and recording all required Express Mail
data when packages are accepted.  To ascertain whether procedures and
controls were adequate to protect EMCA revenue and were being
followed, we reviewed pertinent Postal Service policies, procedures,
and forms for EMCA operations and discussed Express Mail and EMCA
practices with Service officials in three customer service districts
(Dallas, TX; New York, NY; and Van Nuys, CA).  We selected the New
York and Van Nuys districts because they were among those having the
largest number of EMCA transactions.  We selected the Dallas district
to provide broader geographic coverage of the Service's EMCA
activities. 

To help determine if use of EMCAs had resulted in revenue losses, we
reviewed, but did not verify, various management reports relating to
EMCA activities generated from the Service's Electronic Marketing and
Reporting System (EMRS)\3 .  These reports provided data on (1)
invalid EMCAs accepted by the Service, (2) EMCAs with negative fund
balances, and (3) Express Mail packages delivered by the Service with
no acceptance data recorded.  For the three selected districts, we
gathered data on the dollar amounts of the EMCA negative balances
that existed for at least five consecutive accounting periods.  We
scanned some Express Mail labels in all three districts to determine
if the Postal Service accepted Express Mail packages from EMCA
customers and did not record any acceptance data.  We reviewed data
provided by the Service's collection agency on the amount of
EMCA-related postage lost due to invalid EMCAs.  We reviewed relevant
portions of all 19 Postal Inspection Service reports that addressed
EMCA activities in various districts, including two of the three
selected districts. 

To help determine what recent actions, if any, the Service had taken
or planned to take relating to EMCAs, we interviewed various
headquarters officials responsible for EMCA procedures and controls
and for providing employees with equipment that could help to
strengthen EMCA-related controls.  We also discussed EMCA procedures
with officials at the Service's area offices in Dallas, TX and
Memphis, TN.  At the Memphis office, we inquired about a recently
developed EMCA self-audit guide, which was to be used by all
districts. 

To determine what actions the Service might take to reduce EMCA
losses, we interviewed various headquarters officials and reviewed
various Service reports showing the purpose to be achieved with
EMCAs, Express Mail volumes, and related data after the Service
introduced EMCAs.  We also interviewed account representatives for
two of the Service's principal competitors for overnight
delivery--Federal Express and United Parcel Service.  We determined
if these competitors offered corporate accounts to customers and, if
so, what they required for opening an account. 

The Postal Service provided written comments on a draft of this
report.  The Service's comments are summarized and evaluated
beginning on page 17 and included in appendix II. 

We did our work from November 1995 through April 1996 in accordance
with generally accepted government auditing standards. 


--------------------
\3 This system is administered by the Service's Information Systems
Service Center in San Mateo, CA. 


   REVENUE LOSSES FROM CORPORATE
   ACCOUNTS HAVE GROWN
------------------------------------------------------------ Letter :4

EMCA procedures have not adequately protected the Service against
postage revenue losses, and EMCA customers have sometimes obtained
Express Mail services without valid EMCAs.  Postal Service reports
showed that the EMCAs were invalid because the EMCA numbers used by
customers did not match any of the Service's valid numbers.  Also,
although EMCAs are to always contain sufficient funds to cover
Express Mail postage, EMCA customers sometimes overdrew their
accounts and accumulated large negative account balances. 

The Service lost increasing sums of Express Mail revenue in the past
3 years because of weak internal controls over EMCAs.  Nationwide,
the Service referred about $966,000 in delinquent EMCAs to its
collection agency in fiscal year 1995.  Of that amount, the Service
recovered about $165,000 (17 percent), and the balance of $801,000
was written off as uncollectible, almost twice (90 percent increase)
the amount written off in 1993, as figure 1 shows. 

   Figure 1:  EMCA Revenue Losses
   Increased by About 90 Percent
   Between Fiscal Years 1993 and
   1995

   (See figure in printed
   edition.)

Note:  The Postal Service did not have data readily available for
fiscal years 1993 through 1995 to show whether the volume of EMCA
transactions varied significantly over these 3 years.  However, the
total Express Mail volume varied by less than 10 percent during the 3
years when EMCA write-offs increased by about 90 percent. 

Source:  Compiled by GAO from the Postal Service's Electronic
Marketing and Reporting System reports. 


      INVALID CORPORATE ACCOUNT
      NUMBERS SOMETIMES USED
---------------------------------------------------------- Letter :4.1

Postal Service reports show that its employees accepted and delivered
some Express Mail packages with invalid EMCA numbers.  After
delivering the packages, the Service determined that EMCA numbers
provided by customers did not match any of the valid EMCA numbers in
the Service's automated system.  The Service lost revenue and
incurred administrative cost to follow up on these customers because
it had not determined that their EMCA numbers were invalid before
accepting and delivering Express Mail packages. 

To help employees detect invalid EMCA numbers before accepting
Express Mail, the Service includes, as part of a "Fraud Alert" in a
biweekly Postal Bulletin distributed within the Service, a list of
EMCA numbers that it has determined to be invalid after some prior
EMCA action (e.g., it had previously closed the account).  Employees
are instructed to not accept Express Mail packages bearing any of the
invalid numbers.  When the packages are accepted at a post office or
a mail-processing plant, employees are to check EMCA numbers manually
against the biweekly list of invalid numbers. 

Various Service officials told us that employees accepting Express
Mail with EMCA payment do not always use the bulletins to check for
invalid EMCAs.  Employees at mail-processing plants are expected to
move huge volumes of mail in a few hours, and Postal Service
officials said that, due to time pressures, most of the EMCA problems
occur as a result of improper acceptance of Express Mail at
processing plants.  A manual process of checking for invalid EMCAs
can take a considerable amount of time because of the large quantity
of invalid numbers to be scanned for each EMCA package (e.g., the
Postal Bulletin dated June 20, 1996, contained about 2,900 invalid
6-digit EMCA numbers listed in numeric order). 

Employees accepting Express Mail packages at post offices and
mail-processing plants have access to and are to use only the list of
invalid EMCA numbers to verify that customers are presenting valid
EMCA numbers.  Therefore, if a customer made up a number, it likely
would not be on the Service's list of invalid EMCAs.  Postal
employees at post offices and processing plants do not have automated
access to valid EMCA numbers--which totaled about 113,000 in February
1996. 

The Postal Service incurred administrative costs to collect postage
from some EMCA customers using invalid EMCA numbers after the Postal
Service delivered Express Mail packages.  Each of the three selected
districts we visited had 4 to 13 employees responsible for domestic
and international Express Mail and Priority Mail activities.  Service
officials said that all districts have employees with similar
responsibilities.  District officials told us that these employees
receive reports each workday showing EMCA errors that must be
investigated so postage can be collected. 

These administrative actions can be time consuming and costly because
they entail obtaining copies of mailing labels, verifying data, and
recording new data when a valid EMCA can be charged.  When the EMCA
number appears to be invalid, i.e., does not match the Service's
records of valid EMCA numbers, the employees must further investigate
each case through telephone calls or letters asking for reimbursement
and requesting mailers to stop using invalid accounts. 


      EMCAS SOMETIMES OVERDRAWN
      AND COLLECTION IS DIFFICULT
---------------------------------------------------------- Letter :4.2

Some customers continued to use EMCAs although they had insufficient
funds in their accounts to cover charges for Express Mail services
that they received--a problem that the Inspection Service reported
over several years. 

Under current Service procedures, customers must maintain a minimum
EMCA balance of either the customer's estimated Express Mail postage
for 1 week or $50, whichever is higher.  However, employees do not
have the necessary EMCA data access to verify that this requirement
is met before accepting Express Mail packages.  Some EMCA customers
overdrew their EMCA accounts, and the Postal Service continued to
accept Express Mail packages from these customers. 

When EMCA customers overdraw their accounts, Postal Service
procedures require that employees contact individuals and businesses
to collect the postage due.  A letter is to be sent to the EMCA
customer when the account is deficient for one postal accounting
period (28 days).  If the account remains deficient after 3 postal
accounting periods (84 days), the Service is to close the account and
refer it to a collection agency used by the Service. 

However, the Service has little information from EMCA applications to
use in locating customers and collecting postage.  Under current
Service procedures, an individual or corporation is to be approved
for an EMCA after completing a one-half page application, which shows
the applicant's name, address, and telephone number, and depositing
the minimum money required in the account.  The Service does not
require the applicant to present any identification, such as a
driver's license or major credit card, to receive an EMCA.  Employees
approving EMCA applications are not required to verify any
information presented on the applications.  Thus, an EMCA applicant
could provide false or erroneous information on the application and,
in these instances, efforts by the Postal Service and its collection
agency to locate the customers and collect postage on the basis of
information in the EMCA application likely would be unsuccessful. 

A Service report on EMCA operations for February 1996 showed that
about 97,000 of the approximately 113,000 EMCAs (or 86 percent) had
money on deposit with the Service totaling $18.5 million.  However,
for the remaining 14 percent, or about 16,000 EMCAs, there was no
money on deposit; rather, the accounts were overdrawn by $4.3
million. 

According to the Service's management reports on Express Mail
operations, many EMCAs had large negative balances for periods
exceeding three accounting periods and were not closed or sent to the
collection agency.  For example, in the New York district, 16 of the
27 EMCAs we reviewed had negative balances for about 5 consecutive
accounting periods (about 140 days).  Of these 16 EMCAs, 10 had
negative balances of more than $2,000 each, at the time of our
review; and the negative balance for one account was about $10,000. 
Similarly, in the Van Nuys district, 10 of the 14 EMCAs we reviewed
had negative balances for 5 consecutive accounting periods, and the
negative balances for 8 accounts were about $3,000 each.  In the
Dallas district, 3 of the 12 EMCAs we reviewed had negative balances
for 5 consecutive accounting periods, including 1 EMCA with a $8,800
negative balance. 

The Service's practice of allowing postage to remain unpaid for
Express Mail services over long periods of time is inconsistent with
the Service policy, which requires that Express Mail must be prepaid
or paid at the time of mailing.\4 Further, allowing customers to
overdraw EMCAs and maintain active EMCAs with negative balances for
periods exceeding three accounting periods\5

violates Postal Service procedures. 

The Postal Inspection Service has conducted financial audits that
included a review of controls over EMCA operations.  Postal
inspectors in the New York district reported finding overdrawn EMCAs
during five audits done since 1987.  Some audits revealed that the
total negative EMCA balances for the district exceeded $600,000.  The
inspectors reported that the Van Nuys district had EMCAs with
negative balances at various times since 1988.  For example, in 1994,
the district had EMCA accounts with negative balances totaling about
$122,000. 

As a result of financial audits, the Inspection Service also reported
EMCAs with negative balances in many districts that we did not visit. 
In reports on districts with negative EMCA balances, the Inspection
Service recommended that local management take action to eliminate
such balances. 


--------------------
\4 U.S.  Postal Service's Domestic Mail Manual, Sept.  1, 1995. 

\5 A postal accounting period is 4 calendar weeks or 28 days, with 13
accounting periods comprising a postal fiscal year. 


      ACCEPTANCE DATA FOR SOME
      EXPRESS MAIL PACKAGES NOT
      RECORDED
---------------------------------------------------------- Letter :4.3

Along with not verifying some EMCAs, Service employees at times did
not make any record of accepting Express Mail packages that the
Service processed and delivered.  In these instances, the necessary
information was not available to respond to customer inquiries about
the status of packages and process requests for postage refunds when
customers claimed that packages were delivered late.  Also, in cases
where EMCAs were to be charged, the Service lost some revenue because
of the lack of acceptance data. 

Employees receiving Express Mail packages, whether EMCAs are used or
not, are to electronically scan a barcode on the mailing labels to
record data for tracking and reporting purposes.  When the packages
include EMCA numbers, employees are to record those numbers so that
the Service can charge postage to the EMCA.  Postal Service reports
showed that, for the 12-month period ending February 1996, it
delivered about 1.9 million domestic Express Mail packages, or 3.4
percent of total domestic Express Mail volume, for which the Service
did not record any required acceptance data.\6

Service officials in the three districts we visited said that
recording Express Mail acceptance can be a problem when customers
drop packages in collection boxes and employees are expected to
record acceptance data when the packages arrive at a mail- processing
plant.  According to these officials, pressures to keep the mail
moving and meet scheduled deadlines can result in some Express Mail
being received, sorted, and delivered without proper acceptance. 

Service officials at headquarters and in the districts we visited
routinely receive exception reports showing that Express Mail was
delivered but not properly accepted.  They said that generally no
attempt is made to correct these errors or collect the postage due in
cases where EMCAs are used.  Specifically, district officials said
that they were instructed by Service headquarters not to take any
action in these cases.  They also said that they did not have the
employees needed to do follow-up, even if it were required. 

When the Service failed to record acceptance of Express Mail
packages, it did not have data needed to respond to customers'
inquiries about the status of Express Mail packages.  Because the
packages were not logged in, the Service had no record to show when
packages were received.  The Service needs such data to verify
whether Express Mail customers' claims for postage refunds on late
deliveries are valid.  The Service guarantees that Express Mail
packages will be delivered on time.  In fiscal year 1995, the Service
refunded postage to Express Mail customers totaling about $1.5
million.  We did not determine if it had adequate data for
determining whether the refund claims were valid.  However, if the
Service lacks data on when a package was accepted for delivery, it
cannot determine whether the package was delivered on time or whether
it was delivered late. 

Further, the Service regularly reports on-time delivery rates for
Express Mail on the basis of the data that are to be recorded when
packages are accepted and delivered.  When acceptance data are not
recorded, the Service has incomplete data to report on-time delivery
rates for Express Mail. 

The Service lost unknown amounts of revenue because some customers
had included EMCA numbers on Express Mail packages, but Service
employees did not record any acceptance data.  We scanned some
Express Mail labels in the three selected districts and noted that
all three had received some Express Mail packages from EMCA customers
without recording acceptance data.  In all three districts, the
practice was to not follow up when customers used EMCAs; therefore,
no Express Mail acceptance data were recorded.  Postal Service
officials in the three districts and at headquarters did not know the
extent of EMCA revenue losses associated with the failure to record
Express Mail acceptance data. 


--------------------
\6 Although we looked mainly at domestic Express Mail transactions, a
similar problem exists for some international Express Mail.  For
example, according to Postal Service reports, during one postal
accounting period, the Dallas district delivered 3,163 international
Express Mail packages where required data were not recorded at
acceptance points. 


   ACTIONS THAT COULD HELP REDUCE
   EMCA REVENUE LOSSES
------------------------------------------------------------ Letter :5

We identified two Postal Service actions under way that could help to
improve EMCA controls and thereby reduce related revenue losses and
provide needed EMCA data.  However, these actions were not fully
implemented at the time of our review, and the actions do not address
some EMCA control weaknesses that we identified. 


      SOME ACTIONS WERE BEING
      TAKEN
---------------------------------------------------------- Letter :5.1

Recognizing the Postal Service's overall vulnerability to revenue
losses, in 1994, the Senior Vice President for Finance established a
new revenue assurance unit to help collect revenue owed to the
Service.  The new unit targeted EMCAs as one of five Postal Service
operations for improvement.  The unit developed strategies, such as
self-audits of EMCA activities, to reduce revenue losses resulting
from EMCAs.  At the time of our review, the strategies had not yet
been fully implemented; and no results from the self-audits, or the
unit's other EMCA-related efforts, were available for our review. 

In addition to the above action, the Postal Service was installing
"point-of-service" terminals at post offices to provide employees
with improved access to current postage rates and certain other
automated data maintained by the Postal Service.\7 According to the
headquarters manager responsible for the point-of-service terminal
project, eventually, the terminals are to provide access to the EMCA
database and thus enable employees to verify EMCA numbers and fund
balances before accepting Express Mail packages.  He said that the
date and additional cost to provide this access are yet to be
determined. 

The Service did not plan to provide the terminals to employees in
mail-processing plants who accept Express Mail packages.  These
employees will still lack access to valid EMCA numbers and current
fund balances, and the Service will continue to be vulnerable to
revenue losses when customers drop Express Mail packages in
collection boxes and include invalid EMCA numbers on the packages. 


--------------------
\7 In June 1996, the Postal Service Board of Governors approved
funding of $275 million for the first phase of "point-of-service
equipment" acquisition and deployment.  According to the Postal
Service, the first phase will provide 22,414 terminals at 4,124
retail facilities and cover approximately 36 percent of the retail
revenue. 


      PLANNED ACTIONS DO NOT FULLY
      ADDRESS EMCA CONTROL
      WEAKNESSES
---------------------------------------------------------- Letter :5.2

Although completion of Service actions discussed above should help to
improve controls over EMCAs and reduce related revenue losses,
control weaknesses will remain.  Taking additional steps to better
ensure compliance with existing controls, as well as adding controls,
can help to protect revenue.  But, the Postal Service will incur cost
to strengthen internal controls over EMCAs.  Given this and other
factors, such as changes that have occurred in the overnight mail
delivery market and new methods of providing customer convenience, a
reasonable step would be for the Postal Service to first ensure that
it wants to retain EMCAs before incurring substantial, additional
costs to improve related controls. 

The Postal Service introduced EMCAs in 1984 to help stem the decline
in the growth of Express Mail business and become more competitive. 
As we previously reported,\8 since that time, private carriers have
dominated the expedited (overnight) delivery market.  We reported
that Federal Express is the acknowledged leader in this market and
that the Postal Service's share of the market declined from 100
percent in 1971 to 12 percent in 1990. 

Recognizing these market realities, in recent years, the Postal
Service has focused marketing efforts more on Priority Mail--which
generally is to be delivered in 2 or 3 days--than overnight Express
Mail.  Priority Mail accounted for almost 6 percent of total revenue
in fiscal year 1995, compared with just over 1 percent for Express
Mail.  Unlike Express Mail, the Postal Service does not offer a
corporate account for Priority Mail, and the annual growth rate of
Priority Mail pieces outpaced Express Mail growth over each of the
past 5 fiscal years.  (See figure 2.)

   Figure 2:  Comparison of
   Express and Priority Mail
   Volume Growth Rates, Fiscal
   Years 1991 Through 1995

   (See figure in printed
   edition.)

Source:  U.S.  Postal Service's "Revenue, Pieces, Weights" reports
for fiscal years 1991 through 1995. 

Other factors also suggest that EMCAs may not be the most
cost-effective method of offering payment convenience.  Specifically,
in 1994, the Postal Service began offering customers the use of major
debit or credit cards (e.g., MasterCard, Visa, or American Express)
to pay for various mail services at post offices.\9

Customers who want to drop Express Mail packages in collection boxes
currently have the option of using postage meters to pay postage.\10

Thus, as one step toward addressing EMCA control problems, the Postal
Service could compare the relative customer convenience,
administrative cost, and risk of revenue losses of EMCAs with
alternative payment methods currently available to Express Mail
customers.  The Postal Service could also consider competitors'
current customer service practices.  On the basis of our limited
inquiry, we found some of the Postal Service's competitors (i.e.,
Federal Express and United Parcel Service) offer corporate accounts
to customers.  For example, Federal Express offers customers a
"FedEx" account and requires that applicants have a major credit card
to qualify for an account. 

If the Postal Service determines that EMCAs are necessary or
desirable, we identified two additional steps, beyond those now
planned and under way, to help minimize the risk of EMCA abuse and
revenue losses as discussed below. 

  -- First, while the self-audits proposed by the revenue assurance
     unit could help to improve compliance, the audits were just
     getting started at the time of our review.  Express Mail
     packages can be accepted at about 40,000 post offices and
     several hundred mail-processing plants, and self-audits covering
     all of these entities will take some time to complete.  Postal
     Service headquarters responsible for Express Mail operations
     could reinforce the need for managers and employees to comply
     with existing internal procedures and controls designed to
     prevent EMCA abuse.  These procedures require employees to (1)
     record all required data from Express Mail labels, (2) verify
     EMCA numbers presented by customers against lists of invalid
     EMCA numbers, and (3) close EMCAs with negative balances running
     more than three postal accounting periods. 

  -- Second, the Postal Service could improve EMCA internal controls
     by imposing more stringent requirements for opening EMCAs, such
     as requiring that individuals present a valid driver's license,
     a valid major credit card, or other appropriate identification
     to receive an EMCA.  If Postal Service employees approving EMCAs
     are required to record information from such sources about EMCA
     applicants, such information could be useful to the Service and
     its collection agency to locate and collect postage from
     customers with overdrawn and closed EMCAs. 


--------------------
\8 U.S.  Postal Service:  Pricing Postal Services in a Competitive
Environment (GAO/GGD-92-49, Mar.  25, 1992). 

\9 U.S.  Postal Service:  Proposed Policy to Accept Credit and Debit
Credit Cards Makes Sense Conceptually (GAO/GGD-94-154, June 16,
1994). 

\10 As detailed in our earlier report, Postage Meters:  Risk of
Significant Financial Loss But Controls Are Being Strengthened
(GAO/GGD-94-148, May 26, 1994), the Service has taken numerous
actions to improve control over postage meters and reduce postage
revenue losses. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Internal controls over EMCAs are weak or nonexistent, which has
resulted in potential for abuse and increasing revenue losses over
the past 3 fiscal years.  Establishing adequate control over EMCA
operations will require management attention and additional dollar
investments. 

In light of the control problems we identified, overnight mail market
developments since 1984, and the increased availability of other
payment methods, EMCAs may not be the most cost-effective method of
providing a convenient method for paying Express Mail postage.  This
question requires further evaluation by the Postal Service of all the
relevant factors. 

If EMCAs are necessary or desirable, the Postal Service can take
steps beyond those planned and under way to help minimize revenue
losses and other problems associated with EMCAs.  Some employees did
not always comply with existing EMCA procedures for checking EMCAs
numbers and recording Express Mail data.  Although acceptance
employees are under pressure to move the mail and some have side
stepped some required tasks, management could emphasize to these
employees the importance of following EMCA procedures and collecting
the postage due when the Postal Service delivers mail.  Further, the
Postal Service violated its procedures by allowing customers to
overdraw EMCAs and continue using them for up to 5 months. 
Currently, few requirements exist for customers to obtain EMCAs; and
more stringent requirements for opening EMCAs, similar to those used
by the Service's competitors, might also help to avoid Express Mail
revenue losses. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To help reduce EMCA revenue losses and other related problems
discussed in this report, we recommend that the Postmaster General
require Service executives to determine if EMCAs are the most
cost-effective method for achieving the purpose for which they were
intended, in light of all relevant factors. 

If EMCAs are determined to be a necessary or desirable method, we
recommend that the Service (1) establish stronger requirements for
opening EMCAs and (2) hold managers and employees accountable for
handling EMCA transactions in accordance with the new requirements as
well as existing Service policies and procedures for verifying EMCA
numbers, closing EMCAs with negative balances, and recording required
data for all Express Mail packages accepted. 


   POSTAL SERVICE COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

In a September 9, 1996, letter, the Postmaster General said that the
Postal Service agreed with our overall findings and conclusions.  He
said that the Service was moving forward with initiatives to cut down
on revenue losses from invalid EMCAs.  In addition to the two actions
discussed previously in our report, he said that the Service will
take the following actions to address our recommendations: 

  -- Establish more stringent requirements for opening and using
     EMCAs.  These requirements will include a $250 deposit (in lieu
     of a $100 deposit now required) to open an account and weekly
     reviews at acceptance units of EMCA use to ensure that minimum
     balance requirements are met.  Area and district managers will
     focus more consistent attention on ensuring that acceptance
     units follow EMCA procedures. 

  -- Examine the feasibility and cost of installing terminals at
     mail-processing plants in addition to the terminals being
     installed at many post offices to check instantly whether EMCAs
     are valid and contain sufficient funds for Express Mail postage. 

  -- Evaluate whether continuing to offer EMCAs as a payment option
     still makes good business sense. 

The Service expects these corrective actions to go a long way toward
minimizing the use of invalid EMCAs and revenue losses. 

We agree that, when the Service has fully implemented the actions
taken and planned, controls over EMCA are likely to be significantly
improved.  The Service will need to coordinate these EMCA improvement
actions with its evaluation to determine whether to continue offering
EMCAs.  Otherwise, it could incur unnecessary cost of improving
controls over EMCAs if later it determines that EMCAs do not make
good business sense and should be discontinued. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Postmaster General, the
Postal Service Board of Governors, the Ranking Minority Member of
your Subcommittee, the Chairman and Ranking Minority Member of the
Senate Oversight Committee for the Postal Service, and other
congressional committees that have responsibilities for Postal
Service issues.  Copies will also be made available to others upon
request. 

The major contributors to this report are listed in appendix III.  If
you have any questions about this report, please call me on (202)
512-8387. 

Sincerely yours,

J.  William Gadsby
Director, Government Business
 Operations Issues


DESCRIPTION OF THE POSTAL
SERVICE'S EXPRESS MAIL CORPORATE
ACCOUNT PROCEDURES
=========================================================== Appendix I

EMCAs are available to both individual and business customers.  Under
current Service procedures, anyone can open an EMCA by depositing
$100 or the customer's estimated 2-weeks Express Mail postage,
whichever is higher.  EMCA customers are required to maintain a
minimum balance of $50 or 1-week Express Mail postage, whichever is
higher, on deposit with the Service.  Although Service officials said
that the number of active EMCA varies daily, Service records show
that, during the month of February 1996, an average of about 113,000
EMCAs existed nationwide. 

When opening EMCAs, customers are to be given a six-digit EMCA
number, and these numbers are to be included on mailing labels
affixed to the Express Mail packages.  Customers can drop the package
in a collection box designated for Express Mail or take the package
to a post office, mail-processing plant, or other places where the
Service accepts Express Mail. 

Postmasters, clerks, or other Service employees accepting Express
Mail at post offices and mail-processing plants are to electronically
scan a preprinted barcode on the Express Mail label, which enters the
label's unique identifying number into an automated system for
tracking purposes.  The employees are to weigh the package, verify
that the customer calculated the correct postage, and take steps as
required to ensure the correct postage is collected.  These steps are
to be done for all Express Mail, whether an EMCA is used for payment
or not. 

For those Express Mail packages involving an EMCA, employees
accepting the package are to determine if the EMCA number on the
package is invalid by manually comparing the number against a list of
EMCA numbers that the Service has determined to be invalid.  If the
number on the package is not found on that list, employees are to
manually key in the EMCA number and the postage due so that the
amount can be charged to the EMCA.  An EMCA is to be charged for the
Express Mail package when employees record a valid EMCA number at the
acceptance point and scan the Express Mail barcode.  A sample Express
Mail label follows, showing EMCA numbers and other data to be
recorded by employees when they accept a package. 


   SAMPLE EXPRESS MAIL LABEL
--------------------------------------------------------- Appendix I:1



   (See figure in printed
   edition.)

   Source:  U.S.  Postal Service.

   (See figure in printed
   edition.)

After acceptance is recorded, the Service is to track each Express
Mail package until it reaches the delivery station near the home or
business receiving the package.  At these stations, Service employees
are to again electronically scan the barcode on the Express Mail
label before the package is delivered. 

The Service has an Electronic Marketing and Reporting System
(EMRS)\11 to record, track, and report on Express Mail transactions. 
The system is used to receive and compare the Express Mail
identification numbers scanned by postal employees at the post
offices or mail-processing plants and delivery stations.  If the
comparisons show no match between the scanned barcodes entered at the
points of acceptance and delivery, exception reports are to be
prepared and made available to Service officials each workday for
follow-up action.  EMRS also generates reports showing (1) pieces of
mail charged to invalid EMCAs; (2) Express Mail packages scanned at
either the acceptance point or the delivery point, but not both; and
(3) EMCAs with insufficient or negative fund balances. 

Along with these exception reports, the system generates other
reports every 4 weeks for use by Service officials and, in some
cases, EMCA customers.  Among these reports are those that show
Express Mail volume and revenue, on-time delivery rates, and refunds
of postage for late delivery.  Service officials and each EMCA
customer are to receive a report every 4 weeks showing the beginning
EMCA balance, number of packages mailed, amount of postage charged
during the preceding 4-week period, ending and minimum balances, and
any additional deposit required by the customer. 



(See figure in printed edition.)Appendix II

--------------------
\11 This system is administered by the Service's Information Systems
Service Center in San Mateo, CA. 


COMMENTS FROM THE U.S.  POSTAL
SERVICE
=========================================================== Appendix I



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Michael E.  Motley, Associate Director
James T.  Campbell, Assistant Director

DALLAS FIELD OFFICE

Sherrill Johnson, Core Group Manager
Raimondo Occhipinti, Evaluator-in-Charge
Hugh Reynolds, Evaluator


*** End of document. ***